Here’s what you need to know about the industrial growth rate’s slip

Recently, the Central of Statistics Office (CSO) declared a revision of the base year for the All-India Index of Industrial Production (IIP) from 2004-05 to 2011-12 as a uniform exercise. This was done to analyse structural changes in the economy and improve the quality and representativeness of the indices.

In the data published by the CSO on the 12th of June, 2017, industrial growth was noted to have declined to 3.1 percent due to a poor performance of power, manufacturing, and mining sectors. The sinking performance of these sectors is due to many factors including a lack of implementation of the advanced technology, delay in its adoption, and the lack of eminent infrastructural amenities.

Improved performances

The general index of April 2017, was 117.9 which was 3.1 percent higher than the index of the previous year for the same month. Regarding Industries, 14 out of 23 have shown a positive growth. Industries manufacturing medicinal chemicals, pharmaceutical and botanical products top the list with an ameliorating growth rate of 29.1 percent. Industries manufacturing tobacco products, and machinery and equipment managed to get a growth rate 17.9 percent, and 9.5 percent respectively.

In addition, products like digestive enzymes and antacid, printing machinery, meters (electric and non-electric), beedi, tea, different types of industrial valves and HR coils and sheets of mild steel show a high improvement in growth rate when compared to the previous year.

Shrinking growth rate of various industries

According to the data published on the CSO website, the power, the manufacturing, and the mining sectors have primarily caused a fall in the industrial growth rate. The power sector showed a slow pace of growth at a rate of 5.4 percent, which was far lower than the previous year’s 14.4 percent. The manufacturing sector grew at a rate of 2.6 percent in April this year, while the rate was 5.5 percent in April last year. The growth rate of the mining sector was only at 4.2 percent in the month under review, while it was 6.7 percent in 2016.

The output of capital goods that serve as the magnitude of investment in the company, decreased by 1.3 percent compared to the growth of 8.1 percent last year. The growth rate of consumer durable products also plummetted to 6 percent.

Amongst all the industry groups, the manufacture of beverages group has shown the highest negative growth of (-) 19.2 percent followed by (-) 15.6 percent in the manufacture of motor vehicles, trailers and semi-trailers, and (-) 14.4 percent in the manufacture of electrical equipment.

Primary goods, intermediate goods, and construction goods have shown a growth rate of 3.4 percent, 4.6 percent, and 5.8 percent respectively in April 2017. The consumer non-durables also marked a growth rate of 8.3 percent in April this year.

Expected changes in the future

Although the mining, manufacturing, and power sectors have advanced in the past few years, they have not been able to show the expected level of progress. This is because technological changes have not been adopted and implemented. Many basic needs of the sectors are also not catered to.

The Indian mining industry contributes 2.2 percent to 2.5 percent of the GDP. The industry has the potential to grow manifold due to a robust demand for minerals in the country. However, the adoption of the new technology must be rapid. Last year, the government approved the National Mineral Exploration Policy which aims to encourage the exploration of minerals. This is expected to create the investment of 1,00,000 crore in the mining industry.

The Indian coal sector which is highly responsible for the power sector is now able to meet the expected demands, due to an increase in the production of coal. In addition, the government has approved the new coal allocation policy ‘Shakti’, with the objective of ensuring transparency in the coal allocation and to allocate the coal as per its bidding. The coal production will thus, meet 90 percent of its demand by end of 2017. Therefore, the companies belonging to the power sector will be provided with the requirements on time which will result in the growth of the overall power sector.

As per a report by consulting firm PwC, India is set to become the fifth largest manufacturing country by the end of 2020. Prime Minister Narendra Modi’s ‘Make in India’ project is an initiative to make India a manufacturing hub. Currently, the manufacturing sector contributes 16 percent of the GDP but with this ambitious project, it is likely to reach 25 percent by 2025.

The country is seeing a constant increase in the Foreign Direct Investment. This will, in turn, create more employment in the country. Thus, it is all a matter of time; Indian industries have the potential but it will take some time to see actual effects.